You assume they're all paying for the power. Once you remove that assumption, it makes more sense.

The reason is much more Machiavellian, namely if you keep the price of entry high and you loose money to mine for 80% of the time then the 20% of the time that it's extremely profitable you have a bigger multiple since the competition is weaker then it would've been otherwise.

is mining competitive, though?

Absolutely. A fixed reward (25 BTC) is rewarded each time a block is mined. Each block is based on the prior blocks in the chain, so when one miner mines a block, all the other miners must start over. Blocks are mined on average once every ten minutes, so basically, a random miner is selected approximately once every ten minutes to receive a reward.

Saying they have to start over is implying that you're somehow making progress. The only progress your are making is just ruling out a few inputs from a massive search space. You don't really lose any work when it resets because the work you've done is useless.

I understand the semantic difference, but I'm not sure the distinction matters in any way. The implication that there is progress is tenuous at best.

Of course they lose work. They have to pay the set-up cost of bundling a new set of transactions for the next block.

They will only stop once the electricity is more expensive than the mined bitcoins. We're not there yet.

Many won't even stop then because of the belief that the price can/will return to previous levels if not higher. Quite the interesting dynamic.

but that is effectively irrational isn't it?

if mining 1 bitcoin costs you 500 dollars and they are sold on the market at 400 why don't you switch off your gear for a while and just buy them ?

Maybe the point is people are merge-mining multiple bitcoins, or the electricity bill for them is way lower than we think it is.

There's also the question of how much of the electricity is paid for. E.g. how many miners are mining on "free" electricity at their parents house, or have access to rack space with "free" electricity (our racks at work come with a certain amount of power, for example; someone putting a Bitcoin mining rig in there would not increase our costs as long as the power doesn't exceed certain limits), or has a miner in a quiet corner at work or similar?

Or any number of other ways of getting free / outright stealing electricity.

maybe they don't have the money to buy them because it's been all spent for mining gear?

Then how can they afford the electricity?

They will earn more coins by paying the electricity and using the already bought mining gear, than if they stop paying for the electricity and use that money to buy coins.

Not if buying the coins is cheaper than mining them, which is what the GP is saying.

Currently, mining is still profitable so it wouldn't make sense for them to stop yet. Once Bitcoin dips below a certain value (around $100 I believe?) then we will have to watch for the drop off.